 Conservative Reporting and the Incremental Effect of Mandatory Audit Firm Rotation Policy: A Comparative Analysis of Audit Partner Rotation vs Audit Firm Rotation in South KoreaDafydd Mali and Hyoung‐joo Lim Australian Accounting Review, 2018, vol. 28, issue 3, 446-463 Abstract: In this paper, we take advantage of Korea's unique experiment with mandatory audit firm rotation (MAFR) and mandatory audit partner rotation (MAPR) to ascertain their influence on audit quality, proxied by conditional conservatism. Overall, we find that the implementation of MAFR did not have the desired effect. Firms that adopted MAFR demonstrate higher levels of conservatism in previous periods under MAPR (or compared to voluntary adopters). Furthermore, we find that audit tenure increases conservatism levels consistent with the auditor expertise hypothesis. However, whilst evidence suggests MAFR decreases audit quality on the whole, we find that firms that switch from non‐Big 4 to Big 4 auditors demonstrate higher conservatism because Big 4 auditors are more likely to demand conservative accounting practices, consistent with Big 4 audit firm knowledge superiority. Overall, the results suggest that MAFR's negative effect on audit quality can be mitigated by Big 4 auditor supervision. Date: 2018 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:ausact:v:28:y:2018:i:3:p:446-463 Ordering information: This journal article can be ordered from Access Statistics for this article Australian Accounting Review is currently edited by Linda M. English More articles in Australian Accounting Review from CPA Australia |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.